Not everybody retires ~ some die before then. Then, of those who retire, some die early, some die soon after that, and yet others die a long time from now.
There's a scientific field of study called ACTUARIAL SCIENCE. It weighs the probability of death ~ based on actual data regarding death ~ and determines what it will take to sustain the retirement program for all the members out through time.
It also has to account for new entrants, and changing demographics.
Politicians like to ignore all of this since the numbers are huge and that always hurts their heads.
What happens is that your typical financing plan for any retirement system ends up appearing UNDERFUNDED. You have $X going in and $Y going out. Sometimes when the underlying investments are doing good, and new retirements are down, you may have a retirement system that looks OVERFUNDED. That always excites management since so many systems were set up so that companies could "tap" surplus retirement system funding.
Occasionally the fund managers will expand benefits such that the "surplus" gets used on behalf of the members. BTW, that's usually when a retirement system runs into trouble ~ what you have to do is look at the actuarial reports, not just the apparent balance sheet.
One general rule for most retirement systems is that you are not allowed to pass on the benefits to your heirs and assigns (except under very strenuous rules related to disabled survivors, spouses, etc). A typical individual plan would try to leave some surplus "for the kids". A group plan will leave them penniless.
I hope that helps answer some of your questions. The basic idea in a group plan is to build up a fund that can provide a retirement income for the members of the group. Some "win" and some "lose" by dying before they've been paid back.
1. Politicians cannot see a pile of money without trying to grab it. Actually, this is true for most humans.
2. Underfunding of retirement systems USUALLY comes about like this: Contributions must equal the outgo times the number of people times a factor of rate of return. When the budget does not permit full contributions, politicians and other policy wonks don't worry about what will happen ten years down the road, they worry about making this year's budget balance and juggle the numbers. Instead of projecting the rate of return on what is a realistic number of how an investment will play out, they say, "We have X amount of dollars to put into the fund this year. What rate of return is required to make the fund look actuarially sound? A lot of funds projected a rate of return of 8-10% annually. Yes, it MIGHT happen some years, but basing a fiscal projection on a rate of return that high is nuts. You aren't going to have a rate of return of 10% unless a good credit risk is having to pay 10% on a loan. Any projected rate of return that exceeds the loan interest rate paid by a good credit risk is speculative, and could very well lose money.
As a last note, one of the things that will come up shortly is that government employees that have the option of retiring will do so in large numbers. This will put a big hit on the retirement systems.
Kind of disappointed that you felt you need to school me.
Your short course in actuarial calculation does not change the fact that you did not list the value of that program on a present (paycheck) basis. I am quite certain that an Actuary could calculate that value taking mortality, departure from education employment. And I am also certain that for teachers who retire at ages between 55 and 65 (http://wiki.answers.com/Q/What_is_the_average_age_of_retirement_for_a_teacher) the value is considerable.
A rule of thumb I read recently for retirement preparation is 20-30 percent of income.